Regulator set to approve Qantas-Emirates partnership

The competition watchdog is proposing to approve an alliance between Qantas and Emirates. The Australian Competition and Consumer Commission has issued a draft decision authorising the alliance for five years which is half the period the airlines requested.

Transcript

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ELEANOR HALL: The competition regulator has thrown Qantas a lifeline by giving a provisional green light to the airline's proposed partnership with Emirates.

The alliance deal is set to start in April and will see the two airlines coordinate pricing, sales and scheduling as well as frequent flier programs.

Qantas had been banking on the tie-up to bolster its struggling international business which lost $450 million in the year to June.

The chairman of the Competition and Consumer Commission, Rod Sims, spoke about the decision to our business editor Peter Ryan.

ROD SIMS: We had to weigh up whether there was any serious disadvantage by allowing two competitors to combine, and we looked at that in the Europe route, the Asian routes, and the New Zealand routes.

Now on the European route, Qantas and Emirates are the two biggest players, and that would normally be a problem but here we just saw so many other competitors - Singapore Airlines, via Singapore, Cathay via Hong Kong, Etihad via the Middle East, and of course there's a growing number of Chinese airlines that are providing route to Europe via China.

And all those players are keen to get people through their hubs and on their planes. So we judge that there should be really any loss of competition there and if Emirates or Qantas, but particularly Emirates, were to seek to push up its fares, that people would have many other options of avoid those higher fares.

PETER RYAN: So despite the size and the power of Qantas and Emirates, you don't see any threats to competition or lessening of competition by that alliance?

ROD SIMS: I mean Emirates is the world's biggest airline, but in terms of which airlines are growing quickly, I mean obviously Emirates has been growing quickly, so has Etihad, Singapore Airlines is a very big player, so is Cathay.

The Chinese airlines are growing, there's just a lot of player out there, they're very hungry, they're adding capacity, they're adding new aircraft with plenty of seats, and in the airline industry, once you have the capacity, you need to fill it, and our judgement is that there's enough capacity out there on all routes really, there's enough capacity out there that airlines will want to fill those aircraft and do so by continuing to compete on price.

PETER RYAN: You obviously are concerned though about the length of the partnership, so it's going to five years rather than the proposed 10.

ROD SIMS: With these authorisations, I mean we're authorising competitors to collaborate, and so we usually don't like to have them much longer than five years, there are exceptions.

Here we thought that look, the benefits aren't that large. We are making assumptions about how other airlines will behave into the future, we need to see whether they're right, and also we have imposed on Qantas and Emirates the fact that they need to maintain their capacity on the Australia-New Zealand route so that they continue to keep the same number of seats plying those routes.

And we just felt all those things considered, that after five years, it's worth having a look at it. If it works out as we expect I would imagine we'd have no problem extending it.

PETER RYAN: Are you satisfied that neither Qantas nor Emirates will jack up their fares because of any loophole in competition?

ROD SIMS: We are confident of that. If we weren't confident of that Peter we would not have approved it. That was the key issue. This is not about protecting Qantas, I know that's of interest to Qantas, but it's not of interest to us.

Our interest is purely the long term interests of consumers. We want to know they're not going to suffer, particularly through higher prices or reduced service as a result of this alliance, and we're confident that in fact there'll be net benefits coming their way, not problems.

PETER RYAN: This alliance is critical to the future of Qantas, and no doubt you would have been subject to a higher level of representations from Qantas about the benefits of that alliance. Was that something that you had to take into account?

ROD SIMS: We took all the representations into account. We spoke to Qantas on numerous occasions, we spoke to most of their competitor airlines, we took into account all the things they said, but usually when we have an authorisation like this, the parties make claims that many of them are more important claims to them than they are to wider competition.

So we always sift through these claims, we listen carefully, but ultimately we make our judgements in the long terms interests of the consumers rather than any particular airline.

PETER RYAN: Are you aware of any other proposals Qantas might have to partner with another airline that might change the ground rules here?

ROD SIMS: We're not. If they were to do that they'd need to come to us again and we'd have a free right to look at that. I'd be very surprised if they wanted to do that.

PETER RYAN: This is a pretty big change in Australian aviation because the kangaroo route had traditionally gone through Singapore for Qantas, now going through Dubai because of the Emirates relationship.

Did you have any concerns about that?

ROD SIMS: Look in the end we didn't, in fact there's benefits from that because at the moment, when Qantas flies to Singapore, it's usually flying there to accommodate the flight that goes on to London or to Europe. In fact Singapore is the main hub if you're an Australian and you want to get to Asia.

If Qantas is now freed from using Singapore as its hub to Europe, it can then focus its flights to Singapore to better suit integrating with on-travel within Asia and we see that as a benefit, and we're already seeing them doing that.

So that's actually a plus, not a minus.

ELEANOR HALL: That's the ACCC chairman Rod Sims speaking to our business editor Peter Ryan. And there'll be a longer version of that interview on The World Today website later today.